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Small Business
Resource Center > Article
If You’re Looking for a Small Business to Buy, What Are Your Startup Funding Options?
25 Feb 13 Posted by: Kathleen C Lanza
in Start-Up
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As you will soon see when browsing BusinessOpportunity.com, there are literally hundreds of great businesses for sale, and they take many forms. While some of the home, online or other business opportunities, distributorships, franchises or licensee opportunities you’ll find here will offer prospective and qualified buyers assistance in finding the necessary startup capital, others won’t.

That means you’re on your own. And that can be a lonely place to be, especially if you’re new to the startup lending and borrowing game.

When it comes to new business opportunity or any other business startup, what are your options?

funding your start-upOf course, deciding which funding alternative is exactly right for you is a complex endeavor, one that will require a significant amount of homework. It will also mean conducting some serious risk-benefit analysis, but that doesn’t mean that we can’t give you a brief overview of what’s out there for you to consider, enough that it might start you off in the right direction anyway.

So here it is, a quick look at some of the more likely startup funding options you’ll want to learn more about if you’re serious about buying a business opportunity, franchise or other small business…

Personal Assets—Going it entirely alone and funding all of your startup from your own personal assets, also known as “bootstrapping,” can be an especially attractive option if you’re looking to buy a low-cost business opportunity or even one that requires virtually no initial investment to get started. And yes, they’re out there.

However, startup is not just about funding your enterprise for a few days, weeks or even a few months. It’s also about making sure you can sustain yourself that first year when things are going to be tight and you need to reinvest as many of your profits as you can. It’s a pretty risky proposition, but one that has worked countless times for entrepreneurs with a high tolerance for risk and who have some financial cushion to fall back on if and when things don’t necessarily go according to plan.

Personal assets may include: personal savings, retirement savings, credit cards, home equity, dividends and real estate, among others. Each option presents considerable financial risk to your own future, so know what you’re getting into and make sure you’re prepared to handle the consequences.

Friends or FamilyFamily and the network of people who already know you and appreciate your work ethic and expertise and who believe in you can be one of your best assets in launching new business opportunities of any kind. Even if they can’t invest in your dream to buy and start a company of your own directly, they oftentimes know people who know people who will. Here’s the thing though, business is business. Anyone who invests in you, whether family, friend or not, may very well want a return on his or her investment. So be prepared to present your case for why you and your business opportunity or other small business enterprise are a good risk. Moreover, if and when you become profitable, don’t be surprised if whoever lends you money comes knocking for a piece of the action. You need to take all of that into account and take steps to protect all the involved parties before any money changes hands, or you might irrevocably damage longstanding personal relationships in the long run. Plus, everyone needs to look closely at the potential fallout should your startup fail and ask themselves whether or not the gamble is truly worth it.

Traditional Financing—Although new business startup and other financing can be tougher to come by these days than it has been in the past, there are signs that credit for small businesses is loosening somewhat, enough that it makes a trip to your local bank or other lending/financial institution worth the trip. However, you better have both your business plan and airtight presentation on why what you’re proposing is a good investment all buttoned up, or all bets are off. And if your credit rating is not in good shape, best to look elsewhere.

SBA or VA Loan—Loans backed by the U.S. Small Business Administration (SBA) are partially guaranteed by the government, which makes them less risky. However, securing one can require significant amounts of paperwork, so be ready. Additionally, borrowers have to be creditworthy, are usually required to contribute some equity and are expected to pay the loan back out of the business’ cash flow. Other government-secured loans are available through the Department of Veterans Affairs and are for active-duty military preparing to transition to civilian life, as well as their spouses and survivors.

Equity Financing—Equity financing includes any option for obtaining capital whereby investors secure an equity ownership stake in your business in return for the money they lend you. Angel investors, venture capitalists and strategic investors would all come under this category. These kinds of investors are usually looking for the more high-end, fast-track startup opportunities, but they have been known to back qualified franchise candidates and other entrepreneurs, especially where they stand to reap a reasonable reward of some kind, even if it is not financial initially.

Peer-to-Peer (P2P) Lending—Online peer lending sites like Prosper.com and LendingClub.com enable individuals to invest in and borrow from one another in ways only the internet has made possible. In P2P lending, unrelated individuals, or "peers," loan and borrow money without having to go through a traditional lending institution like a bank. Rather, the lending takes place online using various different lending platforms and credit-checking tools. In addition to a borrower’s credit scores, rating and history, potential investors can consider personal loan descriptions, endorsements and community affiliations. The website then handles the servicing of the loan on behalf of both the borrower and the investor.

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